Almost 50 per cent of houses bought by cash buyers

Mortgage loans surge in second quarter, up 44 per cent on first three months of year

Due to the pick-up in mortgage lending Goodbody Stockbrokers said today that it is now forecasting loan growth of 50 per cent in value terms, bringing the total market to € 3.75 billion for the year.

Cash buyers accounted for close to half of all residential property purchases in the Republic in the first six months, indicating that the mortgage market still has some distance to travel towards normalisation.

The latest IBF/PwC Mortgage Market profile for the second quarter of the year shows that some 8,228 new mortgages were drawn down in the six months to June 30th. However, according to the Property Price Register, 15,435 properties were actually sold during this period (a 28 per cent increase on the same period in 2013), indicating that 47 per cent of all property purchases were funded without a mortgage.

“I would say that this shows that we’re still not back to a normally functioning property market,” says Dermot O’Leary, economist with Goodbody Stockbrokers. “In volume terms 50 per cent cash is still very high - prior to the downturn it would have been running at between 20-30 per cent of transactions.”

Despite the continued prevalence of cash buyers however, mortgage lending grew rapidly in the second quarter of the year, with both the number, and value, of loans reaching the highest level since the second quarter of 2010.

According to the figures, the value of mortgages drawn down increased to €820 million, up by 58.4 per cent on the second three months of 2013 and by 44.3 per cent on the first quarter of this year.

The volume of loans also increased, up to 4,803, an increase of 40.2 per cent on the first quarter of 2014, and 48.7 per cent on the same period last year.

Given the upturn in activity, Mr O’Leary is now forecasting loan growth of 50 per cent in value terms, bringing the total market to € 3.75 billion for the year. However, while this will be the largest amount of mortgage lending since 2010, Mr O’Leary notes that this is just half of a “normal” level of lending, which he puts at about €8 billion a year. From a volume perspective, Mr O’Leary expects the number of mortgages drawn down to reach 21,500 this year, rising to 30,000 in 2015.

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While yesterday’s figures did point to signs of a muted recovery in the investment mortgage market - it grew, year-on-year, for the fourth consecutive quarter, and now accounts for 3.9 per cent of loan volumes - the majority of lending is still going to first-time buyers and those trading up. These two groups together accounted for the majority of mortgages, at 86.4 per cent.

The average loan size for purchasing a property increased to €178,297 in the second quarter, up 5.3 per cent on the same period in 2013, dwarfing the 11 per cent or so price growth recorded during this period.

Separately, KBC Bank said yesterday that it was cutting its fixed mortgage rate for new business owner occupiers. The bank has reduced its rates by as much as 60 basis points, or 0.6 percentage points, with a one-year fixed rate falling from 4 per cent to 3.5 per cent, and a three-year fixed rate for those with a loan-to-value of between 80-90 per cent dropping from 4.9 per cent to 4.3 per cent.